Despite limited data, political events are driving markets, but not due to Trump this time. Japan saw Takaichi's unexpected win, leading to a yen decline, though the extent is puzzling given unclear policy leniency. France faces instability with a shocking resignation; while OATs reflect political risk, the euro remains steady for now. Fiscal concerns dominate, and G3 price moves surprised me this week. My positions are tactical, not structural, with no dollar-bearish stance currently. I expect EUR/JPY and EUR/USD to retreat slightly before resuming medium-term trends. Core risks persist in short EUR/SEK, GBP/SEK, and USD/ZAR. French politics, usually irrelevant to markets, now pose short-term euro risks. Macron faces pressure amid caretaker PM appointments and likely elections. If the euro drops below 1.1627, it could head to 1.15, where I may re-enter long positions. Lagarde noted currency impacts on exports, a shift from her usual tone. I remain tactically bearish below 1.1720/30, targeting 1.1580.
We exited our small EURGBP long positions yesterday following the news from France. I understand that politics often leads to fading in the EUR, but it appears that the iterations are becoming increasingly rapid for Macron, suggesting that the ultimate outcome is coming into sharper view and requiring a more significant risk premium to be assigned to OATs. The current positioning poses a challenge for EURGBP and EURUSD, particularly from the SHF perspective, so our strategy is to wait for a more substantial clearing before re-entering. I have no further comments on sterling, which complicates matters for GBP shorts, as there is a lack of information while we continue to incur costs. There hasn't been any indication of an OBR revision leak yet. Support is at 0.8665, with resistance at 0.8700, while 1.3390/00 and 1.3530/35 still hold for GBPUSD.
It shouldn't be a big surprise that the JPY was the most sold currency across all monitored segments yesterday (RM 3z, DHF 2.75z, SHF 1.5z). However, what is somewhat unexpected is that following Honda's comments, we observed new lows in most JPY crosses. Analyzing this, we noticed a notable shift after the comments were released, particularly among hedge funds, while JPY selling sped up for RM. Perhaps strategies were already in place in response to Takaichi's statements? I found the remarks quite intriguing, especially considering only 16 basis points are priced in by the end of the year, along with the focus on 150 in the foreign exchange market. It's evident that Takaichi's main concerns have shifted towards addressing inflation. Therefore, I am now inclined to take the opposite position on this move in JPY. A solid 30-year JBG auction should also provide some support for the JPY, potentially dampening any further steepening. The 151.20/30 level is a clear risk point, while short-term support can be found at 149.65/70, ahead of the 200-day moving average at 148.175.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!